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The Xi-Trump call eased tensions, but Trump is still likely to do much damage.

The Asia Times reports Xi calls Trump’s bluff and wins, time and time again

Odds are good that Xi will continue to drag things out, believing time is on China’s side. By appearing above the fray, Xi continues to outmaneuver Trump, who often seems to be negotiating with himself. China is also having some success positioning itself as the adult in the room as Trump lurches from one trade stance to another, hour by hour.

“The overall objectives of the trade aggression, other than the display of raw power, are as muddled as ever,” says Arthur Kroeber, an analyst at Gavekal Research.

Kroeber adds that “fresh hostilities between the US and China show that the many questions left hanging after the Geneva ceasefire in mid-May still have no satisfactory answers. It’s not clear whether US trade policy is being run by Trump, his trade negotiators or his national security team.”

“I’m operating under the assumption that some major elements of Trump’s tariff policies will remain intact in one form or another,” says Stephen Roach, economist at Yale University.

“Hopefully, they won’t be as severe as threatened earlier, but they will nonetheless impose meaningful taxes on most US imports, with an especially steep penalty on those coming from China.”

Roach adds that “I still suspect that tariffs surviving the current legal skirmishes are likely to be onerous enough to have negative impacts on global trade, with especially adverse implications for the US and China.”

Trouble is, Roach says, “in this climate, companies have no idea how to scale and source inputs for their multinational production platforms. The planning exercise has become an oxymoron, with serious consequences for the real economy.”

The bottom line, Roach notes, is that a “protracted period of policy uncertainty essentially freezes business decision-making on capital spending and hiring, with negative repercussions for income generation and consumer demand; consumer purchasing power should be further constrained by tariff-related price shocks. Uncertainty remains the enemy of decision making.”

Beijing “successfully called Trump’s bluff,” notes Mark Williams, economist at Capital Economics. Eurasia Group founder Ian Bremmer notes that Trump’s talk of a “total reset” with China is really his “biggest climbdown to date.”

Since the 1980s, Trump observers have known that nothing angers him more than being perceived as the “loser” in any negotiation. This partly explains why he signed — and loudly touted — a trade agreement with the UK, an economy with which Washington has a trade surplus. It betrayed a desperation to highlight a trade deal of any kind, no matter how minor.

The Planning Exercise Has Become an Oxymoron

I could not agree more.

Trump is going to lose his totally destructive reciprocal tariff idea, but he still can and will inflict a lot of damage.

Roach’s base case that “some major elements of Trump’s tariff policies will remain intact in one form or another,” is the same as mine.

But there is a lot of difference between huge reciprocal tariffs on every country to Trump’s newly refined focus on steel and aluminum.

That said, small businesses are going to be hammered hard, and big businesses will be stymied, not knowing whether to zig or zag.

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